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A Reuters poll earlier this month showed most economists foresaw the RBI cutting its policy repo rate by 25 basis points to 7.75 percent in the policy review, and follow it up with a cumulative 75 bps of cuts by the end of September.
Since the last cut nine months ago, the Reserve Bank of India (RBI) has resisted pleas from businesses and politicians for further reductions, putting the onus back on the government to take action.
But the central bank had held out hope of a cut sometime this quarter after Prime Minister Manmohan Singh's fractious coalition in September ended a debilitating phase of policy inaction to make urgently needed reforms to reduce the fiscal deficit and attract foreign investment.
The measures, which included giving foreign players more access to its retail and aviation sectors, helped India forestall the threat of a sovereign debt credit rating downgrade to junk status.
Recently, as part of an ongoing drive to trim spending, the government gave oil companies more room to set regulated diesel prices.
In December, inflation slowed to a three year low of 7.18 percent, further building expectations for a cut in rates.
Hopes of a large rate cut, however, were quashed after RBI Governor Duvvuri Subbarao said two weeks ago that inflation was still high.
His comment pushed the benchmark 10-year bond yield up to 7.89 percent from a 29-month low of 7.79 percent touched after the soft December inflation number.
In a report on the economy, issued a day before its policy review, the RBI spoke of taking a measured approach to support growth while balancing the risks.
"Monetary policy needs to continue to be calibrated in addressing growth risks as inflation remains above the Reserve Bank's comfort level and macro economic risks from twin deficits persists," the report warned.
It said recent government reforms had staved off near term risks on the fiscal front, but sustained fiscal consolidation was needed to create room for monetary easing.
"Reforms in September 2012 have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy," the report said.
It also warned that widening current account deficit would also constrain chances to ease policy, even if inflation were to slow further.
The current account gap touched a record high of 5.4 percent in July-September and is likely to rise further in the December quarter, the RBI said.
While measures taken by the government to bring the fiscal deficit within a targeted 5.3 percent of GDP have reduced near term risks, cuts in politically sensitive subsidies were needed for sustainable fiscal consolidation, the RBI added in its quarterly economic report.
The RBI also said its survey of professional forecasters had lowered the growth forecast for the 2012/13 fiscal year ending March to 5.5 percent from 5.7 percent.
GDP growth that once looked set to hit double-digits has been stuck below 6 percent for the past few quarters.
The report went on to say that while inflation was likely to moderate in the current quarter ending in March, there were still significant risks posed to prices by suppressed inflation.
Looking ahead, the RBI will be calculating how much leeway it has left to ease once it sees the government's annual budget, due to be presented in late February by Finance Minister P. Chidambaram.
"The next step in monetary policy will be taken on the back of measures taken to back up the fiscal consolidation roadmap. A lot will ride on the budget," said Shubhada Rao, chief economist at Yes Bank in Mumbai.
unless revenues are collected honestly deficit will oincrease manipulation inactive it dept lack of strict vigilance by it authorities to check tax evasion by crores of peop le corrupted black money stashed outside in billions all to be brought back then automatically things will set rightwhy to tax poor manwho pays . collect taxes who evades in billions by different ageencies tightan monitary flow incountry no develpomenttakes place bec black money flow revenues area meagre amount inflation cannot be cut just be manipulation unless govt is very strict to collect tax dues fron thosewho evadeand alive in luxuries
With the liquidity of information flow across masses through various medium - TV, Internet etc. The way we use to think and make decisions have changed. The capitalists spend a lot on marketing and projecting thing in a way that benefit most. By doing so they make us thing what they want us to think. The government too which ideally should work for the benefit of the nation and make policies that benefit the society seems to have forgetting their duties and are completely sold out to the capitalists. Coming to the rate cut: Loans might become cheaper - Who is the biggest beneficiary, of course, the capitalist they will have to pay less interest on the money they borrow and if they fail to repay, they will be bailed out by the government. The looser is tax payer. A small benefit will go to the masses also in the form of cheaper housing and other loans, but ultimately that too mean indirect benefit to the capitalist as the masses will be encouraged to buy house by taking loan, these houses are being sold by capitalist. So ultimately that benefit too is going to the capitalists. Inflation will go higher; masses will be most affected by these. Deposit rate might go lower, here too the loser will be the masses as they will get less interest on their savings and they will also have to deal with inflation too. Now people who live on interest income will be hit badly since they have to deal with inflation and low return rates. And most of these people belong to old age group. Higher liquidity, may lead formation of a bubble.
strict censorship needs to be enforced on media -print or visual; the media people seem to compromise on their social responsibility; media people are good in grinding their axe.
